Wednesday, June 30, 2010

I am on a business trip to China so have been reading up on research on general and online specific travel trends.There is a lot of information out on the Intertubes but much of it is buried deep on disparate sites- and is often contradictory.Thanks to a tweet from Chloe Lim I came across and economist article collecting a selection of the better research links.The story is an Economnist piece called “Travelling with a little help from friends “.It is the BOOT recommended read of the week.

Summary from the story is that more than any other market, the online China is turning to social networking to drive retail purchasing behaviour including travel.

Tuesday, June 29, 2010

A deal merging two of Australia's online short let/holiday rental distribution companies to form Occupancy.com has prompted a series of posts here are the BOOT.In part 1 of this series I shared with you my discussions with Occupancy co-CEO Justin Butterworth (pictured) on the size and mechanics of the market.In this part 2 I will share my conversation with Butterworth on the merger deal itself and what’s next for the sector.

The deal

The deal to merge TakeABreak and rentahome.com.au,two of the four main players in the Australian holiday rental accommodation market, was hatched in Nov 2009 and signed in December. Butterworth is not talking how much but has admitted that the deal was all share deal (no capital raising). An assessment was made between the two companies as to relative size and grow rates to determine how much of the combined entity each would get (again not disclosed). Rentahome has maintained its office in Sydney's MoorePark and Butterworth's co-CEO Craig Davis will stay in the TakeABreak office in Canberra.

They have completely integrated the back end systems to allow for on inventory platform system to cover all 20,000 properties. The interest twist to their integration is that they have maintained the different login screens and supplier interfaces. Different inputs but one system. Butterworth told me that there was less than a 10% overlap between the two brands. The limited cross over was because Renathome had focused on the short let metro market whereas TakeABreak was focused more on regional and rural holiday accom.

SEO rankings drove the deal as much as inventory. Butterworth told me that SEO marketing is the “cornerstone of the business”.He told me that cross linking between the two brands is expected to drive a 30% uplift in SEO traffic for the combined group.Once the email lists are deduped he expects the combined group of subscribers to be greater than 400,000.

What’s next for the company and industry

This deal has not generated the press that it probably deserved.Though the bulk of the booking value and revenue remains with the properties, my calculations on the online short let/holiday rental market size show that Occupancy number 2 in terms of bookings generation in a battle that includes subsidiaries of Fairfax, News Corp and Yahoo7!. The specific challenge for Occupancy will be to achieve number one spot in the face of this competition.

For the whole of the online short let/holiday rental sector there are three general challenges:

Live vs non-live:Consumers are looking for instant confirmation when they book online. Occupancy is the online one of the majors that offers live inventory but only on a proportion of its properties (Butterworth is not saying what percentage). It is clear that this is a challenge for all the players;

Product certainty when no uniform standards: Star rating systems in the hotel sector are constantly open for criticism for bias and lack of uniformity.The position is much worse in the short-let/holiday rental sector.There is no uniform independent service that customers can go to for comparing the quality of different properties.Butterworth and Occupancy are trying to deal with this through their Rental Guarantee.This outlines the checks that they do on a property.It provides a validation on the details in the description matching the property but the industry is still missing an easy mechanism for property comparison (hence challenge 3); and

Building profiling and recommendation engines:you would have seen me write often on the future of online travel being around targeted and individuated recommendations (my EveryYou concept).This is particularly the case for a sector like this where there is such a variety of product is some many secondary rural and regional destinations.The challenge is to be build a combination of technology and human solutions to help guide people to the right properties and destinations.

That all said, the variety and uniqueness of the product offerings within the short-let/holiday rental sectors goes a long way to compensate for theses challenges and is the reason for the growth of a health intermediary market in Australia.

Sunday, June 27, 2010

A war is brewing in the alternative accommodation sector in Australia. It is a war that generates a lot less press and pundit attention than the OTA and online hotel battles that consume so much of my time. But the battle for supremacy in online distribution of holiday homes, short term rentals and B&Bs is getting exciting. The latest salvo was the announcement that online corporate/short term rental specialist rentahome.com.au and holiday rental merchant TakeABreak merged to form Occupancy.com.

I had lunch recently with former rentahome.com.au boss and now Occupancy joint-CEO Justin Butterworth (pictured)to talk through the deal, the market and what's next for the online accommodation industry.In part 1 of this post I will share with you our discussions on the online market for short-let/holiday rentals in Australia.In part 2 we will look into the deal and what’s next.

The online short let/holiday rental market

It is a gross but reasonable generalisation that the online accom market is broken up into three sectors. Three sectors that overlap in sharing customers and suppliers but are distinct enough in their offering to be treated differently:

Mainstream Online Hotels Market: Led by Wotif but with HotelClub/Orbtizdisclosure), Expedia, Agoda/Bookings and Chain supplier direct sites making for a very competitive business. Online hotels market in Australia is between $1.5-2 billion a year and growing 15-30% (depending on the research firm);

The short let/holiday rental market is dramatically fragmented compared to the hotel market – goes without saying.Butterworth mentioned that a BIS Shrapnel report on the Holiday Home market in Australia which estimated 500,000 holiday home properties in Australia.Around 200,000 of those are available for regular short let.The rest being private holiday homes that are not regularly rented out.

Butterworth and I tried to figure out the size of online short let/holiday rental market.From our lunch time back of the envelope work we put the size of the Australia online holiday rental/short let market at between $450-500mm.This makes it a quarter to a third the size of the online hotel market.I have arrived at this number through combining two calculation methods – top down and bottom up.

Top down – start with the size of the total market and work downwards

We started with the 200,000 in available stock and assumed an average weekly rent of $1,000 and occupancy at 50%.This sets the full market size based on inventory story is $5.2 billion.Butterworth thought that around 10% of the market is online making a market for short let/holiday rentals of around $500 million.

Bottom up – start with the bookings generated/referred by the major players and work up

Here is what we know about the top players.I had to make a series of assumptions but I think the range is reasonable.

Occupancy joint-CEO told me they are generating $300mm in enquiries to properties per year but is not disclosing the percentage that are confirmed.Will assume 50%.

Realholidays.com.au (REA/News)

$45mm

Real holidays is 1% of REA’s AU revenue (pdf).AU revenue ~$150mm per year (pdf).Therefore Realholidays revenue $1.5m per year. If this was a hotel business, $1.5mm in revenue would mean $15mm in bookings generated.Sounds low so times 3.

Combining the top down and bottom up approaches gives us an online short let/holiday rental market size in Australia of $450-500.With the merger putting Occupancy.com’ estimated $150mm year putting them at #2 in the market to Stayz’s $160mm but not by much.Butterworth told me that Hitwise traffic data would put Stayz further ahead of Occupancy than my booking estimates would argue.He believes that Stayz has a lower conversion rates from enquiries. This would make sense as Stayz is likely to get much more unqualified traffic than Occupancy due to the referral of traffic from Fairfax Digital properties.

Much like online hotels, there are different models in the short let/holiday rental sector.The Stayz model is the listing model.Properties pay to be listed on the site.Occupancy.com operating on a booking fee model.Occupancy.com collects net rates and grosses up by the booking fee.Guests can process payment with Occupancy or pay the property direct (who remit booking fees to Occupancy.com).It is clear that the vast majority of the bookings are being paid offline with the property.

The market sizing proves that the online short let/holiday market in Australia is a substantive and growing market. The Occupancy merger puts a lot of pressure on Stayz as the combined volume has closed the gap to Stayz. But Fairfax, News Corp and Yahoo7! are tough competitors.I am looking forward to seeing how they respond. If the war wasn’t intense already, foreign players also have their eye on the market. US giant HomeAway (more on them here) have put up an Australian holding page at HomeAway.com.au – a clear indication of a push into the market.Expedia’s TripAdvisor have bought another holiday rental firm (Holiday Lettings) to add to Flipkey (already in their stable). No surprises.With a $500mm market to fight for, it is to be expected that many more companies will join Occupancy in this battle for short-let/holiday rental customers.

Tuesday, June 08, 2010

I have had the good fortune to visit Korea twice for work in the last nine months. It has been fascinating getting to understand the market more and work on strategies and plans. In my quest for more information on Korea in general and the online industries in particular I have come across two articles that may interest you.

First - an article on search engine marketing in Korea via SearchEngineWatch and Michael Bonfils called "Search Around the World: South Korea". The first paragraph has the hook - South Korea has three search engines ahead of Google and "the highest CPC prices in the world". Local sites Naver, Daum and Nate have beat Google and Yahoo so badly that the two search giants are fighting to see which of them can claim 3 and which can claim 4 percent market share in search. G and Y have all but given up doing it on their own with Google providing Daum and Nate with their paid search and Yahoo! doing the same for Naver. If you are interested in how search is different in Asia then this is a great read.

The first essay by Stephen S. Roach and Sharon Lam of Morgan Stanley examines the South Korean economy. A highlight for me was their reasoning behind the South's rapid recovery from the Global F'n Crisis. They credit an ability by the economy to hit a middle ground. Not trying to compete with the Chinese on price and not trying to compete with the Japanese on quality. Rather finding a price/quality balance not found in products from the two Asian eco-powerhouses.The second by Christopher Graves of Ogilvy looks at South Korea the brand talks about how South Korea has broken away from the "Hermit Nation" history through World Cups and Olympic Games but still needs to do more to establish the brand identity that benefit neighbours like Japan.

In the third Richard Dobbs and Roland Villinger of McKinsey take a different look at the economy with particular focus on the rise of the services sector. Concluding that for the next level of growth and any chance of achieving Japan like levels of GDP per capita the South must dramatically increase the size of it's services sector

For the fourth essay Shen Dingli of Fudan University outlines "Four steps to prosperity for Korea" including an interesting discussion on how to turn North Korea into an economic asset.

In the final chapter former Economist editor Bill Emmott discussing Korea's geographical advantages as a cross road between China, Japan and Russia. Drawing (possible strained) parallels between South Korea and Italy.

Both are worth a read for their commentary on Asia as a whole as well as Korea.

Is a great place for start-ups to meet with online travel executives, practices their pitches and network with other start-ups. Three finalists from the Bootcamp will get to pitch during the main conference.

Friday, June 04, 2010

Yesterday I flew Auckland to Sydney on Qantas. Playing on their in-flight video was the new Roman Polanski movie Ghost Writer. This movie contains one of the now ubiquitous airline product placements. This one is a doozy.

It starts with Ewan McGregor enjoying a scotch in an amazing looking lounge with no mention of the brand - though clearly the Heathrow Virgin Atlantic Upper Class Lounge. Then it quickly moves to McGregor sitting very comfortably in a beautiful herringbone seat being served by a lovely looking stewardess while both are bathed in red/purple hue lighting. Again no mention of brands but clearly a Virgin Atlantic Upper Class Seat. Then it is time for the closing shot. The sweeping music filled mid shot of the airline filling the sky and filling our screens with the Virgin Atlantic brand. The VS brand money shot. But that is how it plays out in the cinema not on a Qantas flight. No way. As the grainy blackberry photo below shows the money shot is blurred out, the tail is a generic red smudge rather than a bright and embolden declaration of the Virgin brand . Can't blame QF for the mid-air editing - it is a natural reaction to blur out "unsavoury" images from an in-flight video.

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